RC Poll: May Va. Consumer Sentiment & Inflation Expectations Report

Virginians weighed in on their opinions of the economy for the second time this year. The Roanoke College Poll interviewed 604 Virginians about their financial situation, general business conditions now and in the future, their inclination for purchasing durable goods, and their thoughts on prices in the near- and long-term. Indexes of current conditions, consumer expectations, consumer sentiment, and inflation expectations were constructed using methods similar to the popular national measures from the University of Michigan. This is the ninth survey from IPOR on Virginia consumer sentiment and the eighth for inflation expectations. As of 2013, both measures are released quarterly.

Sentiment relatively unchanged in the Commonwealth

The Virginia Index of Consumer Sentiment (VAICS) rose to 84.5 in May, up 1.5-points since February 2014. The increase continues the upward trend held through the middle of 2013, save the drop in November 2013, and is close to the 84.0 reading from May 2013. Sentiment in Virginia is slightly above the May preliminary national consumer sentiment value of 81.8. Figure 1 illustrates sentiment values for Virginia and the United States over time.

Figure 1. Consumer sentiment over time, Virginia and the United States

US data downloaded from FRED 5/24/2014; blue line is US Consumer Sentiment; black line is a two year moving average; orange bars are VA Consumer Sentiment

The Virginia Index of Consumer Expectations (VAICE) is 84.7 in May, up slightly from 82.1 in February 2014. The preliminary May 2014 national measure of expectations is 73.2 indicating that Virginians are considerably more optimistic about the future of the economy than the nation as a whole. The share of respondents who believe that the next five years will be a period of high unemployment and recession is down more than 7 points since February and more than 13 points for the first part of 2014. Differences in these attitudes continue to exist across groups. Republicans (33 percent) and low income households (42 percent) are particularly worried about a poor economy, although these percentages are down dramatically since earlier in the year. Democrats (48 percent) and blacks (41 percent) are more likely to believe the coming years will be a time of economic prosperity than contraction, percentages that have increased slightly over the year.

Virginians report being better off financially today than a year ago and that business conditions have strengthened. The Virginia Index of Current Conditions (VAICC) is 84.2, little changed since February 2014, but up since 2013. Twenty-eight percent of respondents report improved household finances from a year ago. Of those reporting that they are better off financially today compared to a year ago, 62-percent attribute the improvement to higher income, while only 1.5-percent to lower prices. Other reasons given for doing better today include stock market gains and improved family budgeting. Of those who report that they are worse off financially today compared to a year ago, 33.6 percent attribute it to lower income and 34.9 percent blame higher prices. Additionally, poor health, rising health care costs, and job loss are factors in worsening household circumstances.

The nation as a whole is considerably more positive about current economic conditions. The University of Michigan reported a preliminary May 2014 current conditions value of 95.1, down slightly since February 2014. The Virginia-US gap concerning current conditions has persisted since 2013. Thirty-four percent of Virginians believe that business conditions are worse today than a year ago, a 3 point reduction since February, while 26 percent report business conditions have improved. Republicans (51 percent) and whites (38 percent) are considerably more likely to believe that business conditions have worsened in the past year. Comparatively, Democrats (37 percent) and blacks (38 percent) are more likely to consider the economy improved over the year. Figure 2 shows the three indexes for both Virginia and the United States.

Figure 2. Consumer Indexes May 2014, Virginia and United States

Steady sentiment in the Commonwealth and the nation could stem from a variety of sources. A brutal winter has turned to spring, bringing renewed economic vigor. Negative reports from Washington regarding Benghazi and VA hospitals, plus stagnant real wages are balanced by positive reports of declining unemployment rates and stable gas prices.

Tidewater shows renewed optimism, Southside slides

Consumer sentiment in all regions of Virginia, save the Southwest and Southside, improved since February 2014. Regional index values are shown in Figure 3. Taking the biggest plunges were consumer expectations in Southside and current conditions in the southwestern part of the state. In Southside, the population is expected to shrink by 3.5 percent this year and employment is expected to fall in the mining/extraction and utility industries in the near future. The utility industry is the highest paying one in the area, with employees earning an average of $1,247/week. Concerns in the Southwest likely stem from the coal dependent areas. Consol Energy recently announced that it is laying off 188 workers from its Buchanan Mine (Oakwood, VA) and reducing shifts per day from three to two. Additionally, potential new rules and regulations for coal-fired power plants are likely a drag on expectations for the regional economy.

Figure 3. Indexes across the Commonwealth, May 2014

The VAICE in the Tidewater is the highest since the value was first reported in November 2011 and is almost three points higher than the previous mark set in February 2012. Expectations are likely driven by continued reductions in unemployment and growth in container trade and transport. Growth in the Port of Virginia is due to several issues including diverted cargo from New York and New Jersey due to Hurricane Sandy and local labor shortages and improving European markets. Additional growth at the ports could come from traffic through the Panama Canal expansion, which is scheduled to open in 2015. Uncertainty continues to exist for the defense industry in the Tidewater region, particularly with the 2016 budget and the future of USS George Washington, a U.S. Navy nuclear-powered aircraft carrier. A proposal to fund the overhaul and refueling of this carrier is being considered in Washington. Its passage is important for Newport News Shipbuilding, the largest private employer in the Hampton Roads, and businesses directly and indirectly impacted by its employment and production.

Figure 4. Sentiment indexes by region, over time

Prices remain stable in the Commonwealth

The short-term inflation expectation, shown in Figure 5, is down one basis point, and is one basis point above the preliminary national May 2014 value. The long-term inflation expectation is down from February 2014 to 4.4-percent, a continued downward trend for the year and is the lowest value recorded since May 2013. The value is well above the November 2012 low of 3.6-percent. Stable fuel prices likely play a role in the expected disinflation. Both short- and long-term inflation expectations are fairly stable. Predictable prices are crucial to long-run economic growth and job creation.

Figure 5. Short- and long-term inflation expectations over time, Virginia

Short- and long-run price expectations are weighted means.

Methodology

Interviewing for The Roanoke College Poll was conducted by The Institute for Policy and Opinion Research at Roanoke College in Salem, Va., May 12-15, 2014. The sample consisted of 604 residents of Virginia. The sample of phone numbers was prepared by Survey Sampling Inc. of Fairfield, Conn. and was created so that all residential and cell phone numbers, including unlisted numbers, had a known chance of inclusion. Nearly 30 percent of respondents were contacted via cell phone.

Questions answered by the entire sample of 604 consumers are subject to a sampling error of plus or minus approximately 4 points at the 95 percent level of confidence. This means that in 95 out of 100 samples, like the one used here, the results obtained should be no more than 4 points above or below the figure that would be obtained by interviewing all consumers who have a telephone. Where the results of subgroups are reported, the sampling error is higher. Sampling weights were constructed using Virginia Census 2010 data by age, race and gender groups.

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About the Institute for Policy and Opinion Research

IPOR conducts monthly surveys in Virginia that benefit the community, state and nation. Regular topics include Virginians' consumer confidence and political candidate polling.